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U.S. Dept. of Justice Files Suit Against California

Last year, over the objections of the California Land Title Association (CLTA), California enacted Senate Bill 50, which prohibits the sale of federal lands without the consent of the State Lands Commission. The United States Department of Justice has announced that it is suing California over the new law, claiming it is unconstitutional.

Some federal lands were exempted from SB 50 after the CLTA pointed out, among other things, the potential impact on the sale of foreclosed homes held by federal agencies and the problem with property exchanges and easements. Despite amendments that exempted some federal lands, CLTA continued to oppose SB 50 as not only being unconstitutional, but also because it placed title and escrow employees at risk for recording documents that could be alleged to convey real property interests of the United States.

California apparently intends to defend the law by claiming that it simply prohibits recording of an authorized transfer, with recording being a state and local function. The legislation and subsequent lawsuit have highlighted the uncertainly of underwriting title insurance on these planned real property transfers.

The federal lawsuit against California lists examples of planned transfers impacted by SB 50 that involve the Department of the Army, The Department of the Navy and the Department of Veterans Affairs. The activities include the grant of an easement to Los Angeles for mass transit, leasing property for veterans’ supportive housing, the transfer of former military housing to a developer and an exchange of property in a multi-phase transaction for the construction of military facilities. “This lawsuit shines a bright light on the unintended consequences of this bill, most notably its potential impact on affordable housing,” said Craig Page, Executive Vice President and Counsel of CLTA.

Assembly Bill 3160 (Grayson), which is currently under consideration in the legislature, was amended in late March in an apparent attempt to address some of the transfers listed in the DOJ’s lawsuit. The amended bill adds an exemption under SB 50 relating to “the sale or lease of surplus or excess real property that is authorized for disposal or realignment by the federal government during the base realignment and closure process”.